Legal System Abuse Hit Insurers Hard

The Insurance Information Institute (Triple-I) and the Casualty Actuarial Society took a look at how legal system abuse cost insurers a staggering $231.6 billion to $281.2 billion in losses in the past decade. The final figure depends on how things are calculated but whether it’s $231.6 billion or $281.2 billion, it’s a lot.

Triple-I CEO Sean Kevelighan said the study looked at four lines of insurance: personal auto liability, commercial auto liability, other liability-occurrence and product liability-occurrence.

“This analysis illustrates that the severe spikes in liability insurance claims losses go well beyond normal economic inflation,” Kevelighan said. “Legal system abuse, manifested through excessive verdicts and litigation behaviors, has fueled a structural rise in claim costs that continues to increase costs for insurers and policyholders alike.”

Here is a look at the damages:

• Personal liability losses, defense and cost containment expenses were up $91.6 billion to $102.3 billion — an 8.7% to 9.7% of booked losses
• Commercial auto liability rose by $52 billion to $70.8 billion — or 22.6% to 30.8% of booked losses
• Other liability-occurrence rose by $83.4 billion to $103.3 billion — or 27.4% to 34%
• Product liability-occurrence saw an increase of $4.6 billion to $4.8 billion — or 27.1% to 28%

James Lynch is a co-author of the study. He said the number of claims fell over the decade while the average cost per claim went up. And those losses are light-years above economic inflation measured for the time period by the Consumer Price Index.

“The data clearly show that insurance loss inflation has its own unique drivers,” Lynch said. “While general economic inflation is an important factor, legal trends, ranging from litigation financing to larger jury verdicts, have amplified costs well beyond what the CPI-U would suggest.”

The bottom-line of the huge leap in losses comes at the feet of jury awards that are up higher than they ought to be. Third-party litigation financing is also part of the problem.

Source link: Insurance Business America — https://bit.ly/3WDWRIZ